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Lawletter No. 175 Court upholds termination for trademark violations A New York federal court has affirmed a franchisor's right to terminate a franchise where the dealer has violated its trademark rights in the recent case of Little Tor Auto Center v. Exxon Co. USA, (DC SDNY, No. 93 Civ. 2832 (VLB), Filed September 14, 1993, CCH Bus. Fran. Guide, Para. 10,313. Facts: The dealer accepted several less-than-full loads of gasoline in November, 1992. One was 3,550 gallons, and three other were 3,000 gallons. He could not produce invoices or receipts of any kind documenting the source of the gasoline. Exxon alleged that the dealer had co-mingled non-Exxon gasoline with Exxon product, and sold it under Exxon's trademark. The franchisee took no steps to de-identify the pumps. Exxon's territory manager testified that the company only delivered full, 9,000 gallon loads. The dealer did not deny that he had co-mingled product. He claimed that the questioned loads were "sort of Exxon deliveries." Exxon terminated the franchise for violation of its trademark rights, and the dealer filed suit under the PMPA to stop the termination. Ruling: The court ruled in favor of Exxon. The judge stated that: (a) the company has legally valid interest in protecting its trademark rights; (b) The evidence showed that the dealer had co-mingled product; (c) In some cases, an anticompetitive provision of a franchise agreement may not be legally enforceable under the PMPA. But this is not such a case; and (d) The antitrust laws do not forbid Exxon's requiring that only its gasoline may be sold under its trademark. Recommended procedures: The practice of rebranding is full of "traps for the unwary." In many cases, it is simply not possible to do so without subjecting yourself to the possibility (or even probability) of franchise termination. We strongly advise the following: 1. Advise company: Notify the company in advance of your intention to rebrand, and request that the supplier state its position on the procedures to be used in writing. Send your letter by certified mail, and keep a copy of it and the reply for your files. In most cases, the supplier will write back a noncommittal letter. But the company's failure to object may be of some help later on. Even if the company fails to raise specific objections, you still may not be safe. (See below) 2. Check contract carefully: The oil companies use so many different devices to deter rebranding that it is now imperative that you first review the entire situation with your attorney. There are simply too many contract clauses you might violate. If your attorney does not have a substantial experience in the petroleum field, be sure he has a copy of this article. Your review should include minimum purchase clauses, credit card agreements, clauses forbidding the use of the supplier's tanks or pumps for alternative product, signage clauses and similar items. 3. Save documents: Keep and file any material from the company which you might be able to use to defend a particular practice. 4. Record harassment efforts: Keep careful records of any oil company harassment efforts, particularly with regard to TBA purchases or pricing. Such records could be useful in a discrimination defense case. 5. Invoices and receipts: If you do not have invoices or receipts for all deliveries, you could run into a problem. If you buy product from an independent distributor who tells you that the fuel is branded, make you that the invoice or receipt shows the brand. |
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